Parliament: Prudent to refrain from using more of Singapore's reserves, say MPs

Currently, the NIRC framework allows the Government to spend half of the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC.
Currently, the NIRC framework allows the Government to spend half of the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC.ST PHOTO: LIM YAOHUI

SINGAPORE - The question of whether Singapore should draw more upon its reserves to fund increased spending in the future was one of the key topics during the Budget debate on Tuesday (Feb 27), with seven out of 28 MPs who spoke raising the issue.

Most said it was prudent to maintain the existing Net Investment Returns Contribution (NIRC) framework.

Currently, the NIRC framework allows the Government to spend half of the long-term expected real returns generated by the Monetary Authority of Singapore, Temasek Holdings and GIC, the three entities that manage and invest the reserves.

"Rather than use more of the returns for current spending, we should let the power of compounding returns do the work by re-investing the other 50 per cent so as to grow the principal amount of the reserves and contribute to bigger value of the NIRC in the future," said Mr Liang Eng Hwa, chairman of the Government Parliamentary Committee for Finance and Trade and Industry.

He added that this establishes a "fair balance" between current and future generations when it comes to shouldering the nation's financial burdens.

Said Mr Liang (Holland-Bukit Timah GRC): "It is always tempting to go for the short-term painless solution. Our forefathers were resolute in not taking that easy path and so should we...Going forward, we actually need (a) bigger NIRC to keep our tax system competitive and importantly more progressive as well to allow for more long-term investment returns to be used."

But Mr Pritam Singh (Aljunied GRC) said the 50 per cent cap can be adjusted slightly to stave off a GST hike. The increase can also be done temporarily to fund non-recurrent investments in infrastructure such as new MRT lines. When the infrastructural projects have been completed, the cap can be returned to its original level of 50 per cent, and revenue earned from the project can later be returned to the reserves.

"Such proposals leave more scope for the Government to hold back from increasing regressive taxes like the GST," said Mr Singh, who noted that the reserves are estimated to be in excess of a trillion dollars.

"How much of it do we need to protect the Singapore dollar from currency speculators is a valid question, given that the early revenue from land sales alone ensures that our reserves continue to grow in size," he added.

Mr Seah Kian Peng (Marine Parade GRC) said there is scope to review the percentage of investment returns that Singapore draws on at some point, but cautioned that it is important to note that the NIRC, now the biggest contributor to Singapore's revenue, has already been "called into service to a very large extent" .

"It is only when we do not have enough to cater to (vulnerable groups that fall through the cracks) that I feel we should consider raising the percentage - not as a means of populist hot air balloon for everyone who demands a specious equality with their neighbour."

Mr Henry Kwek (Nee Soon GRC) said that while commentators may argue about the precise percentage of NIRC to draw upon, one important principle that must not be neglected is the need for Singapore's reserves to keep growing.

"We must be wary of dipping too much into our reserve income... if our reserves fail to keep up with our growing economy, maybe not at the next crisis, but a few crises down the road, our reserves might not be sizeable enough to anchor the bigger Singapore economy then."